Inside Microsoft's Bold Plan to Bring Interactive TV to Xbox

At the 2001 Consumer Electronics Show, Bill Gates debuted a hulking black box that he thought would one day take over the living room. "Music, television, reading and gaming, none of them will be the same,” he predicted during the keynote speech where he unveiled the original Xbox. “We will soon see an era of extreme entertainment."

Gates was right. Thirteen years later, the media landscape has fractured into a thousand pieces, and consumers have more choices than ever when it comes to what they read, listen to and watch. Tech companies like Netflix and Amazon are now beating out traditional cable networks for the rights to premium, long-form video content. A show originally distributed via the Internet has won an Emmy Award. And now Microsoft, the company that once seemed hopelessly out of depth trying to make video games, believes it can also conquer the world of television.

This week the company is orchestrating a coming-out party of sorts for Xbox Entertainment Studios, the new video unit that aims to make TV shows tailored directly toward the 85 million gamers that own the Xbox 360 or the Xbox One. The division, helmed by former CBS and Warner Bros. executive Nancy Tellem, has ambitious plans to make TV a more social and interactive experience.

“It’s effectively a startup,” says Tellem, who joined Microsoft just a year and half ago.. “We face all the same challenges.”

The first programming will be pegged to big summer events. Every Street United will follow soccer greats Thierry Henry and Edgar Davids as they attempt to assemble street soccer teams in the leadup to the World Cup in Brazil in June. The music festival Bonnaroo will also be streamed exclusively on the Xbox 360 and the Xbox One in June. Later in the year, Microsoft will debut Signal to Noise, a series of documentary films relating to technology that will touch on topics like the video game industry crash of 1983, the birth of Napster and the black market website Silk Road.

Shows earlier in development include Humans, an adaptation of a Swedish thriller about robotic servants run amok, and Fearless, a reality show about an Australian shark attack survivor who helps people perform daring stunts. There’s also a variety show by Sarah Silverman and Michael Cera in the works, as well as a comedy from the creators of Robot Chicken that places stop-motion animated characters in a live-action world. The announced titles are all squarely in the wheelhouse of the Xbox’s young, male demographic, but without the patronizing tone of the failed G4 gaming channel or Spike’s annual televised video game awards.

Many of these shows will feature interactive elements that aren’t possible on traditional television. During the Bonnaroo webcast, fans will be able to flick between stages and potentially Skype with artists after their sets. On Fearless, viewers can select from multiple camera angles as they watch the show. Other ideas are more abstract. The company is testing what it calls “time-shifted comments,” where users’ tweets and other messages are appended to the moment of a show they reference (similar to comments on Soundcloud audio tracks). The Xbox One’s Kinect camera may also play a role—Tellum offered a scenario where a horror show might raise the volume if the Kinect detected that a viewer had buried his face in his hands in fear.

Tellem says it's these types of features that will make the Xbox stand out from the ever-increasing glut of video options. “Everyone’s coming in with original content as a differentiator,” Tellem says. “Our real differentiator is offering true interactivity.”

Beyond the new IPs, Microsoft will also leverage its catalog of hit video games. Halo, by far the company’s biggest gaming property, will be developed into both a movie produced by Ridley Scott and a TV show produced by Steven Spielberg. Other games like Gears of War, Fable and Forza are also being considered for potential shows. “We’re effectively their in-house [production] arm,” Tellem says of her team’s relationship with the gaming studios. “We’re very conscious about the brands, about the fans.”

Tellem is mum on the pricing plans for all this new content, but it’s likely at least some if it will be used to drive subscriptions to Xbox Live Gold, Microsoft’s paid online service that provides access to a bevy of gaming and multimedia features for $60 per year. Advertising will likely also play some role. Microsoft is presenting its lineup of shows at this week’s digital “NewFronts” in New York, when advertisers will get a preview of lineups offered by digital-native platforms such as YouTube, AOL and Xbox.

Primarily, though, TV shows offer a new way to differentiate the Xbox One from its chief competitor, the PlayStation 4. In a world where video game exclusives are increasingly rare—even the sequel to the high-profile Xbox-only shooter Titanfall is expected to appear on the PS4—original shows may be the best way to stand out. “We don’t think there will be a lot of exclusive game content going forward because the math doesn't really work out,” says Michael Pachter, an analyst at Wedbush Securities. “They realized they needed to augment that service by offering other stuff. It’s exactly the same model as Amazon with Prime, offering video.” Shoring up must-have content is especially critical at the moment, with the Xbox One trailing the PS4 in sales.

Of course, Microsoft is as well-known for its failed experiments. The company pitched interactive TV more than a decade ago when it bought WebTV for $425 million—that initiative never gained traction and was quietly shuttered last year. And making a TV hit requires a mixture of talent, money and dumb luck that none of the online players besides Netflix has yet achieved.

Can Microsoft invade a sector of the entertainment industry where they have little experience to become a power player? Well, they've done it before. “The Xbox is the one hardware device that Microsoft makes that's been willfully successful,” Pachter says. “They’re prudently trying to exploit the really successful brand to drive another strategy.”